The U.S. Budget Crisis Explained in Under 3 Minutes

The U.S. is heading for a government shutdown with Republicans and Democrats having so far failed to agree on measures to fund the federal government beyond Thursday at midnight.

On Monday, Senate Republicans blocked a stopgap funding measure passed by the House of Representatives because it would also have raised the debt ceiling, which has become a point of contention.

If no agreement is reached by the deadline, hundreds of thousands of non-essential federal employees will be furloughed without pay and non-essential government services will cease.

The debt limit, or debt ceiling, is a legal limit on how much the federal government can owe to those who hold the country's debt in the form of Treasury bonds, as well as money the government has borrowed from other federal accounts.

The debt limit must be raised periodically so that the U.S. can pay for expenses that have already been authorized by Congress and the president. It does not raise the national debt.

Not raising the debt ceiling runs the risk of a debt default, with potentially catastrophic effects on the economy. The debt limit currently stands at $28.5 trillion.

Republicans raised the debt ceiling three times during former President Donald Trump's administration, with support from Democrats.

However, Republicans are opposed to Democrats' proposed $3.5 trillion infrastructure package. Democrats hope to pass that bill using the budget reconciliation, which would not require Republican support.

The GOP wants Democrats to raise the debt ceiling on their own through reconciliation. Attaching the debt limit to reconciliation could make it harder for Democrats to pass the $3.5 trillion bill.

Senate Majority Leader Chuck Schumer (D-NY) has said using reconciliation to raise the debt limit is a "non-starter," while Senate Majority Whip Dick Durbin (D-IL) said doing so would take three to four weeks.

However, Democrats may be left with no other option. Treasury Secretary Janet Yellen warned on Tuesday that her department may not be able to meet all its commitments if an agreement on the debt limit is not reached by October 18.

Senate Minority Leader Mitch McConnell (R-KY) has said he is willing to support a temporary measure to fund the government that does not include raising the debt ceiling but Democrats have rejected this.

McConnell said Republicans had been "willing to work together to keep the government open, we are not willing to help Democrats raise the debt ceiling while they write a reckless taxing and spending spree of historic proportions behind closed doors."

It is not clear whether Democrats and Republicans will be able to agree on a temporary measure to prevent a government shutdown beginning on Friday or how long that potential shutdown would last.

During the last shutdown from December 21, 2018 to January 25, 2019, some 800,000 federal workers were furloughed and went unpaid for 35 days, missing two paychecks. The 2018/19 shutdown was the longest in history but the potential shutdown this week could be even more serious as the U.S. runs the risk of defaulting on its debt.

Chuck Schumer Speaks to Reporters
Senate Majority Leader Chuck Schumer (D-NY) speaks to reporters after a lunch meeting with Senate Democrats at the U.S. Capitol on September 28, 2021 in Washington, D.C. Schumer has said raising the debt limit through reconciliation is a "non-starter." Drew Angerer/Getty Images